How ‘Failure Analysis’ Can Help in Banking

The new season of the ProSight Banking Strategies Podcast opens with a big idea: banks should study failure more systematically and with more structure, using it to improve decision-making before the next problem arrives. In the first episode, Donald Sheets makes the case for bringing “failure analysis” into banking as a practical discipline, not just a postmortem exercise. 

Sheets, a lecturer in real estate at the Harvard Graduate School of Design with decades of Wall Street experience, comes to the topic through distressed investing and commercial real estate. What emerged from that work, he says, was pattern analysis: the ability to identify where business plans “didn’t hit the mark” and to see how risks interacted over time. In his view, that lens has wider application for banks. 

Several ideas are especially relevant for banks: 

Start by changing the frame. One of Sheets’ first moves is to take some of the stigma out of the word failure. In his class, he often substitutes the word “event,” arguing that the shift helps move the discussion from blame to learning. That matters because, as he puts it, the goal is to turn analysis from “stick to carrot”—from a compliance-style obligation into something that can “maximize profit,” “minimize loss,” and “gain market share.” 

The bigger opportunity is not just looking back. Sheets says banks can learn from retrospective analysis, but he is more interested in what comes next: building toward “pre-mortem analysis.” In other words, use structured review not just to understand what went wrong, but to ask better questions before making future credit, allocation, or strategy decisions. “You really can’t do pre-mortem intelligently unless you really know how to do post,” he says. Over time, that process becomes less episodic and more cultural. 

This is meant to be ongoing, not occasional. Sheets explicitly rejects the idea that event analysis should happen only after a bad quarter or a painful loss. The aim, he says, is to build a process that becomes “part of the DNA” of an organization—something that is done on an ongoing basis, at both the institutional and deal level. 

The lesson may extend beyond the institution. Sheets says some students come away seeing failure analysis not just as a business tool but as a way of thinking more broadly about patterns, decisions, and personal growth. That helps explain why he sees it as more than a narrow technical exercise. 

The takeaway: Sheets’s pitch is not that banks should become obsessed with what went wrong. It is that they should become better at learning from it. Or, as he reframes it on the podcast: “Can we win from failure?” 

This episode is the first in a five-part weekly season of the ProSight Banking Strategies Podcast. Listen on Apple Podcasts, Spotify, Amazon Music, and YouTube.